Sale in course of import by transfer of documents of title to goods before the goods crosses Custom Frontiers of India ((High Seas Sale)

Question:- Please explain sale in course of import by transfer of documents of title to goods before the goods crosses Custom Frontiers of India ((High Seas Sale) with special reference to when the goods crosses Custom Frontiers of India.

Answer :- The High Seas Sale by transfer of documents of title to goods is covered by section 5(2) of the CST Act, 1956. The said section is reproduced below for ready reference.

“S.5. When is a sale or purchase of goods said to take place in the course of import or export.

(1) …

(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.”

There are two limbs of sale covered by above section 5(2). As per first limb the sale which occasions the import of goods from foreign country to India is covered as sale in course of import. However, in present case, we are not concerned with this type of sale and hence not discussed further.

As per second limb, the sale effected by transfer of documents of title to goods before the goods crosses the Customs Frontiers of India are covered as sale in course of import. The term “Crossing Customs Frontiers of India” is defined in section 2(ab) as under.

“(ab) ‘’crossing the customs frontiers of India’’ means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities.”

Thus, any sale effected before the goods crosses Customs Frontiers of India are entitled to exemption as sale in course of import. The above term “Crossing Customs Frontiers of India” has been subject matter of interpretation in various judgments. Reference can be made to few important judgments as under.

In this case Hon. M.S.T. Tribunal has held that if the Bill of Entry is presented by the High Seas buyer it is clear case that the seller has effected sale of goods to him prior to the clearing, as unless it is so sold buyer will not be in position to present the B/E in his name. Under above circumstances the claim of seller as sale in course of import is fully justified even if certain documents are not available. Hon. Tribunal observed as under:

14. “Generally the bill of entry are made in the name of original importer by the custom authorities but in this case specifically bill of entries were made in the name of the subsequent purchaser. In other words it can be inferred that the documents of title to the goods; i.e.bill of lading were handed over or endorsed to the buyers. If it was not the case then the bill of entry would not been made in the name of buyer by the custom authority. Thus it is immaterial to draw otherwise inference that there is no transfer of document of title to the goods by the importer to the buyer.”

In this case the consignment came by Airway bill. Appellant claimed sale in course of import but it was disallowed on the ground that the Airway bill is not negotiable and hence sale in course of import cannot take place. Hon. Tribunal found that the bill of entry is in the name of purchaser of the appellant and hence Tribunal observed that there is indication that the goods are sold before crossing the custom frontier. Therefore the Tribunal allowed the claim.

In this case, Hon. Tribunal has held that the burden to prove claim of exemption u/s.5(2) is on dealer. Even if B/L not available other documents can be relied upon like B/E. Tribunal held that claim can be allowed based on B/E, unless Dept. has any contrary rebutting evidence to show that even if B/E in name of buyer there was no sale from appellant to buyer.

Tribunal also held that endorsement on B/L not compulsory and even by delivery transfer can take place. Tribunal relied upon judgment of B.H.C. in Chhaganlal Savchand (62 ITR 133).

In light of above judgments, it can be said that till the Bill of Entry (B/E) is presented before the Custom Authorities for clearance of the goods, it can be said that the goods have not crossed Customs Frontiers of India and sale effected till that point are entitled to exemption. In other words, once the B/E is presented the Crossing of Customs Frontiers of India take place and no High Seas Sale can be effected thereafter.

Question:- A dealer in Maharashtra wants to effect sale in course of import by transfer of documents of title to goods when the goods are in bonded warehouse. Whether the claim will be admissible ?

Answer :- In this case, the issue is about sale from bonded warehouse. The situation about sale in course of import from bonded warehouse is not free from debate in Maharashtra.

As stated in Q.1 above High Seas Sale is to be effected before crossing the Customs Frontiers of India.

Also as discussed above, we are concerned about sale effected by transfer of documents of title to goods before the goods have crossed the Customs Frontiers of India. The essential ingredient of this type of exempted sale is that the sale must be effected prior to crossing the Customs Frontiers of India, the meaning of which is already discussed above. If it is so effected than it is exempt as in course of import. In case of sale from bond it appears that the goods imported will be first cleared by importer from Customs authority by presenting bill of entry by himself, though such clearance may be for bonded warehouse. No sale is effected by transfer of Bill of Lading etc. prior to this clearance. The sale will be effected after the goods are in bonded warehouse probably by way of bond transfer basis.

In our opinion, when the sale is effected from bonded warehouse, the sale cannot be said to be before crossing the Customs Frontiers of India and hence cannot be exempt. When the goods are first cleared by presenting bill of entry the goods have “Crossed Customs Frontiers of India” as per definition of said term in CST Act,1956 (Sec.2(ab)). There cannot be crossing of Customs Frontiers again when goods are cleared from bonded warehouse.

In this respect the reference can be made to the judgment of Maharashtra Sales Tax Tribunal in case of M/s.Indo Tex Export (P) Ltd. (S.A.No.284 & 285 of 90 dt.17-6-1995). The above judgment is by Larger Bench of Tribunal and in this judgment it is held that sale effected from bonded warehouse cannot be allowable as sale in course of import by transfer of documents of title to goods. The exemption u/s.5(2) of CST Act,1956 is denied to such sale in above case. In this case Tribunal held that once the goods are cleared from Customs for home consumption or bonded warehouse, the crossing of Customs Frontiers gets completed. There cannot be crossing the Custom Frontiers twice. The storing of goods in bonded warehouse is for deferment of duty and nothing to do with Customs Frontiers as per section 2(ab) of CST Act,956. The Tribunal has, thus, disallowed the claim.

However in case of State Trading Corporation of India Ltd. (129 STC 294) the Madras High Court has held that the sale effected from bonded warehouse is still sale before crossing Customs Frontiers of India and hence duly entitled to exemption. With due respect, we are of the opinion that this judgment requires reconsideration. In this case Madras High Court has relied upon judgment in case of Kiran Spinning Mills vs. Collector of Customs (113 ELT 753)(SC). In this Supreme Court judgment the issue was about payment of Custom duty. Supreme Court held that the duty is payable at prevailing rate when goods are cleared from bonded warehouse. In our opinion the above judgment cannot have impact on section 2(ab) of CST Act,1956 since it was regarding payment of duty. As per relevant provisions of Custom Act, Supreme Court held that the duty is payable at the prevailing rate at the time of clearing the goods from bonded warehouse. However as per section 2(ab) of CST Act, the crossing the Customs Frontiers is relevant. As held by M.S.T. Tribunal in above case, the said crossing will take place while clearing the goods at first instance. Thus clearing form bonded warehouse may be relevant for payment of duty but not for section 2(ab) of CST Act. The M.S.T. Tribunal has held that for payment of custom duty the crossing of custom area is relevant which includes the bonded warehouse also. The same position is applied by Supreme Court in above case of Kiran Spinning. The M.S.T. Tribunal has further held that for section 2(ab) of CST Act,1956 the crossing of custom station is relevant which is a narrow term compared to custom area. Therefore, M.S.T. Tribunal has held that for section 2(ab) crossing of custom station will amount to crossing

Customs Frontiers and hence claim of sale in course of import cannot be allowed from bonded warehouse, such warehouse being outside custom station.

However it may be mentioned that based on above judgment in case of Madras High Court in State Trading Corporation of India Ltd. (129 STC 294) the division Bench of Maharashtra Sales Tax Tribunal in case of Radha Sons International (S.A.1358 & 1359 of 9-10-2007) has held that even the sale from bonded warehouse is allowable, as High Seas Sale, exempt u/s.5(2) of CST Act, 1956.

Therefore, the issue can be seen from two angles. With due respect to Madras High Court judgment, in our opinion, the judgment of Larger Bench of M.S.T. Tribunal in Indo Export Tdg. Co. is laying down correct legal position. The other angle is that in any case for sale effected from bonded warehouse in Maharashtra the Sales Tax Authorities in Maharashtra will not follow the judgment of Madras High Court. It is a fact that it being a judgment under Central Act it is binding on all lower authorities unless there is any direct judgment of the High Court of the respective state or of Supreme Court. In Maharashtra, till today there is no direct judgment of Bombay High Court on above issue and the issue will go to Bombay High Court. In fact allowing reference from above judgment of Radha Sons International (S.A.1358 & 1359 of dt.9-10-2007) vide Ref. App. No. 45& 46 of 2008 dt.24-6-2008, the controversy has already reached to Bombay High Court. The outcome of judgment of Bombay High Court will prevail. Till that time for all probabilities the Maharashtra Sales Tax Authorities may follow the judgment of Larger Bench of Tribunal referred to above and may not allow the benefit. Therefore in our opinion a dealer in Maharashtra should take a cautious view of the matter keeping into account the above debatable position of law.

Author: Shri C.B. Thakar

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

R. Jayasimha Babu and A.K. Rajan, JJ.

STATE TRADING CORPORATION OF INDIA LTD.

Versus

STATE OF TAMIL NADU

Writ Petition Nos. 20085-20086 of 2000, decided on 17-10-2001

Sales Tax – Exemption – Sale of goods effected by transfer of documents of title to goods having been made before goods crossed customs frontier of India, sale effected in the course of import – Exemption available to dealer in respect of that part of its turnover, from assessment to tax under Tamil Nadu General Sales Tax Act – Sections 5(2) and 2(ab) of Central Sales Tax Act, 1956. – For a sale to be one in the course of import it has to be either one which has occasioned the import or has been effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. Admittedly, the sale effected by the dealer is not one which occasioned the import. The only question required to be considered is whether the sale effected by transfer of documents of title to the goods was made before or after the goods had crossed the customs frontiers of India. The customs frontiers for the purpose of this Act is equated to the limit of the area of the Customs Station in which the goods are stored, crossing of such station being regarded as amounting to crossing the customs frontiers of India. In this case, the goods had been warehoused and the clearance for home consumption was made under Section 68, after the title to the goods had been transferred to the buyers. The duty was paid by the buyers. The ‘clearance’ referred to in Section 2(ab) of the Central Sales Tax Act, in the absence of any other compelling factor has to be regarded as having reference to the clearance of goods for home consumption under Section 47 or the clearance of warehoused goods under Section 68. The clearance in this case, clearly was after the transfer of documents of title and was not earlier. The crossing of the limits of the Customs Station took place after the clearance of the goods from the warehouse for home consumption. The title having passed on to the buyer before such clearance and crossing, the sale effected by the assessee/dealer was clearly one which was in the course of import. [paras 5, 7, 14, 16, 17]

REPRESENTED BY : Shri Chandran of M/s. Chandran Karuppiah, for the Petitioner.

Shri T. Ayyasamy, Spl. G.P. (Taxes), for the Respondent.

[Order per : R. Jayasimha Babu, J.]. – The assessee here sold goods which it had imported and which goods had been assessed to duty after a Bill of Entry has been filed in respect of those goods, but, on which the duty had not been paid, the same having been warehoused in the Customs Port the Port being Chennai. The sale was effected by transferring the documents of title while the goods were in the Customs warehouse which were located within the Customs station. Duty was paid on these goods by the buyer, who cleared the goods under Section 47 of the Customs Act and removed the goods out of the Customs station.

2. The goods in question is news print, which the petitioner State Trading Corporation of India as the canalising agent, imported for the users of news print. The sales, which were the subject matter of the assessment for the years 1986-87 and 1985-86, were effected to the publishers of newspapers in the State of Tamil Nadu, the newspapers being, The Hindu, The Dinakaran and The Daily Thanthi. No sales tax was collected by the assessee on those sales, the dealer having always regarded the sale as one having been effected in the course of import.

3. The dealers claim for exempting that part of it’s turnover from assessment to the tax under the Tamil Nadu General Sales Tax Act was negatived by all the authorities under the Act as also by the Special Taxation Tribunal whose order is the subject matter of challenge before us.

4. The law which governs the matter is the Central Sales Tax Act (the Act), Section 5(2) of which deals with sales in the course of import.

That sub-section (2) of Section 5 reads as under :

“A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India”.

5. For a sale to be one in the course of import it has to be either one which has occasioned the import or has been effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. Admittedly, in this case, the sale effected by the dealer is not one which occasioned the import. The only question required to be considered is as to whether the sale effected by transfer of documents of title to the goods was made before or after the goods had crossed the customs frontiers of India.

6. The words “crossing the customs frontiers of India” have been defined in Section 2(ab) of the Act. That definition reads as under :

“Crossing customs frontier of India” means crossing the limits of the area of a customs station in which imported goods or exported goods are ordinarily kept before clearance by customs authorities.

Explanation : For the purposes of this clause, “customs station” and “customs authorities” shall have the same meanings as in the Customs Act, 1962.

7. The Customs frontier for the purpose of this Act is thus equated to the limits of the area of the Customs station in which the goods are stored, crossing of such station being regarded as amounting to crossing the customs frontiers of India. The ‘customs station’ referred to in this definition is the one which is defined as such under Section 2(13) of the Customs Act : “Customs station” means any customs port, customs airport or land customs station”. Customs Port is defined in that Act in Section 2(12) : “Customs Port’ means any port appointed under Clause (a) of Section 7 to be a customs port and includes a place appointed under Clause (aa) of that Section to be an inland container depot;” Section 7(a) of the Customs Act enables the Central Government, by notification in the Official Gazette, to appoint :-

(a) the ports and airports which alone shall be customs ports or customs airports for the unloading of imported goods and the loading of export goods or any class of such goods;

8. It is admitted here that the Port at Chennai is a Port which has been notified under Section 7(a). That the imported newsprint was stored in that customs port which is also the customs station before clearance by the customs authorities is also not in dispute.

9. The crucial event for the purpose of Section 2(ab) of the Act and consequently for Section 5(2) of the Act is the crossing the limits of the area of the customs station.

10. It was submitted by the learned Counsel for the State, by placing reliance on the decision of the High Court at Andhra Pradesh, in the case of Minerals and Metals Trading Corporation of India Ltd. v. State of Andhra Pradesh, 1999 (106) E.L.T. 23 (A.P.) = 110 STC 394, that when goods are assessed to duty by the Customs Authorities after the Bill of Entry is filed the importation is completed even if the duty is not paid and the goods remain within the customs station. In that case the view taken was that irrespective of the fact whether duty is paid or not, as it is only after the Bill of Entry is filed and the import duty is assessed the goods can cross the limits of the Customs Station, transfer of documents of title before the clearance of the goods by the Customs authorities, but after the assessment of goods, would not amount to a sale in the course of import. It was held that after the assessment to duty is made after filing the Bill of Entry, the goods get mingled with the general mass of goods and merchandise in the country, and physical movement of goods out of the customs station, and the time at which the duty was paid would not be relevant.

11. With respect, we are unable to subscribe to the interpretation set out in that judgment, having regard to the plain language of Section 5(2) and Section 2(ab) of the Central Sales Tax Act.

12. As held by the Supreme Court in the case of Kiran Spinning Mills v. Collector of Customs, 1999 (113) E.L.T. 753, which arose under the Additional Duties of Excise (Textiles and Textile Articles) Ordinance, the taxable event is the crossing of the customs barrier, and not the date when the goods had landed in India, or had entered the territorial waters. When goods are imported into India even after the goods are unloaded from the ship, and even after the goods are assessed to duty subsequent to the filing of a Bill of Entry, the goods cannot be regarded as having crossed the customs barrier until the duty is paid and the goods are brought out of the limits of the customs station. In the case of Kiran Spinning Mills, the Apex Court has observed thus –

“In other words, the taxable event occurs when the Customs barrier is crossed. In the case of goods which are in the warehouse, the Customs barriers would be crossed when they are sought to be taken out of the Customs and brought to the mass of goods in the country.”

13. Until such time as the duty payable on those goods is not paid, the amount of duty payable being determined with reference to the rate at which the duty was levied as on the date of the removal of the goods from the warehouse, the goods cannot be regarded as having crossed the Customs barrier of India.

14. Section 47 of the Customs Act refers to clearance of goods for home consumption, while Section 68 of the Act deals with clearance of warehoused goods for home consumption. In this case, the goods had been warehoused and the clearance for home consumption was made under Section 68, after the title to the goods had been transferred to the buyers. The duty was paid by the buyers.

15. The Tribunal has in its order, placed reliance on the decision of the Supreme Court in the case of Madras Marine & Co. v. State of Madras (63 S.T.C. 169). The Tribunal has omitted to notice the caution set out in that judgment that the amendment introduced in Section 2 by the Act 103 of 1976 would have been relevant only if they were considering the case of sale by the transfer of documents of title to the goods as contemplated by Section 5 of the Central Sales Tax Act, but, that facts of the case before it did not involve a transfer of document of title to the goods, and therefore, the fact that the customs station itself was within the State of Tamil Nadu would not, on that score alone render all sale of goods which are in the course of import and awaiting clearance from that station, local sales.

16. The ‘clearance’ referred to in Section 2(ab) of the C.S.T. Act, in the absence of any other compelling factor has to be regarded as having reference to the clearance of goods for home consumption under Section 47 or the clearance of warehoused goods under Section 68 of the Customs Act. The clearance in this case, clearly was after the transfer of document of title and was not earlier. The crossing of the limits of the customs station took place after the clearance of the goods from the warehouse for home consumption.

17. The title having passed on to the buyer before such clearance and crossing, the sale effected by the assessee/dealer was clearly one which was in the course of import. The impugned order of the Tribunal upholding the denial of exemption to the dealer in respect of these sales is, therefore, unsustainable and is set aside. The writ petitions are allowed.

37 Responses to “All about High Seas Sales”

Sir, We are registered dealer in Mumbai under BST Act and Under CST Act in state of Maharashtra ,We intend to import 100 M.T metals at Kandla or Mundra Port,the same is called as free trade zone, will keep this material in bonded ware house ,AND WE INTEND TO SALE THIS MATERIAL IN PART LOT OF 5 OR 10 M.T, to different different clients as “High Seas Sale “, can this sale attract local sales tax or central sales tax ?, Kindly guide.

A ship has been imported by Indian Govt for Coast Guard operations in the year 1983. Coast Guard has used the ship till the year 2012 and disposed the ship for breaking in open auction by MSTC and a private firm in India has purchased in the auction after paying Sales Tax. This private firm has sold the same vessel to another Indian Firm after collecting sales tax again. Now the second firm started Ship breaking and Customs has ceased the vessel indicating that the Custom duty has not been paid. Is it possible that the Customs duty is applicable after such sales activity between two Indian parties? The Firm insisted on depreciated value of the goods to the Customs dept but they say that depreciation norms are not applicable to this case. Is there a way out?

We have imported edible oil to JNPT Mumbai and we have sold the same to buyer on high seas basis buyer have paid only for 75% and balance 25% not paid so far and goods of balance 25% is still lying at warehouse because we have made pledge deed with the buyer.
we have to despose of the goods how can we do that and how we will show the same in our sales book

OUR PARTY IN AHMEDABAD & NOW WE HAVE PURCHASE OF GOODS OUT OF COUNTRY AND GOOD SOLD FOR DIRECTLY BOMBAY I.E.HIGH SEA SALE SO SIR I WOULD HELP TU US VAT RETURN FILING TO H FORM ISSUE FOR ME AND CST SECTION 5(2) AND PURCHASE IMPORTE HEAD

Whether the goods imported and sold on High Seas Sale to 3rd party & found defective may be re-exported by the original importer FOR REPAIR AND RETURN when the Bill of Entry is in the name of 3rd party.

Dear Sir,
A is exporter to India
B is the Buyer in India(Importer)
C is the HSS Buyer(India) from B
D is the HSS Buyer (Other Country) from C (Export by C to D)
Can D take goods directly from A without landing of goods in India
Kindly clarify

Can CST / VAT be exempted under High Seas Sale or any other rule in the below transaction?:

Company A – foreign supplier
Company B – Indian buyer who buys from company A
Company C – Indian trading company who buys from company B
Company D – Foreign buyer who buys from company C

B buys from A and gets delivery in Singapore. B gives delivery of same consignment to C in his agent’s warehouse in Singapore. Finally C directly ships to European port to company D, his foreign buyer. So there is no import into India.

Is this a valid sale, and at what point will it be transfer of title of goods, and under which section is CST / VAT exempted in the above transaction?

Since I was working in Imports and Exports, I want to point out the following things. Of course, Explanations are there. But we need not worry of them. The main use of importing by this means is economical point of view. For an Example, if your unit is tiny, you do need a small amount of consumables only. When you go for a small amount of consumable, why should we spend lot of money in importing these items? Therefore, it is better to import by High Sea Sales. It means that we are going to buy the small quantity from the Wholesale retailer.The material what we import is the same. What we want is the Import item. There is no need for spending so much money in Import duty, customs duty and Labor charges. Hence, it is economical.
S.Maruthapandian,
Import-Export Manager,
Diamond Industry,
Surat, Gujarat

I want to ask if there are four parties involved in the sale
seller trader 1 trader2 and the buyer than there will be two high sea sale
please clarify can the bill of lading be endorsed twice by trader 2 and buyer or only by the buyer

sir,s
i am a chemical trader in mumbai base and my customer want material from kandla on bond trasfer basis,from the original importer,
original importer has keep material in bond , can he sale material on bond transfer.
he dont have saprate b.L. ( having single bl)

We have procured Imported Manganese Ore and have taken credit of Service tax on Freight from Port to our Plant site. We now want to sale part of quantity in local market as such claerance. Pease clarify whether we have to reverse the Service Tax?

Can I service tax be credit taken against customs clearing agent bills? ( I have Purchase a raw material As per High Seas Sales agreement basis and customs clearing charges born by me, but all customs clearing bills made in the name of clearing agent or third party)

We are one of the importer of Membranes from USA and sales by High sea sales in India.
We know min. of 2% value should be increased from the purchase price, Kindly clarify us how the HSS invoice to be made, Particularly the conversion of USD into INR. We are usualy invoicing based on the EXIM exchange rate on the date of our invoice ( invoicing date of our supplier @USA).Is it correct or is there any notification for convrsion of USD to INR.
Kindly clarify.

Sales Tax – Exemption – Sale of goods effected by transfer of documents of title to goods having been made before goods crossed customs frontier of India, sale effected in the course of import – Exemption available to dealer in respect of that part of its turnover, from assessment to tax under Tamil Nadu General Sales Tax Act – Sections 5(2) and 2(ab) of Central Sales Tax Act, 1956. – For a sale to be one in the course of import it has to be either one which has occasioned the import or has been effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. Admittedly, the sale effected by the dealer is not one which occasioned the import. The only question required to be considered is whether the sale effected by transfer of documents of title to the goods was made before or after the goods had crossed the customs frontiers of India. The customs frontiers for the purpose of this Act is equated to the limit of the area of the Customs Station in which the goods are stored, crossing of such station being regarded as amounting to crossing the customs frontiers of India. In this case, the goods had been warehoused and the clearance for home consumption was made under Section 68, after the title to the goods had been transferred to the buyers. The duty was paid by the buyers. The ‘clearance’ referred to in Section 2(ab) of the Central Sales Tax Act, in the absence of any other compelling factor has to be regarded as having reference to the clearance of goods for home consumption under Section 47 or the clearance of warehoused goods under Section 68. The clearance in this case, clearly was after the transfer of documents of title and was not earlier. The crossing of the limits of the Customs Station took place after the clearance of the goods from the warehouse for home consumption. The title having passed on to the buyer before such clearance and crossing, the sale effected by the assessee/dealer was clearly one which was in the course of import. [paras 5, 7, 14, 16, 17]

REPRESENTED BY : Shri Chandran of M/s. Chandran Karuppiah, for the Petitioner.

Shri T. Ayyasamy, Spl. G.P. (Taxes), for the Respondent.

[Order per : R. Jayasimha Babu, J.]. – The assessee here sold goods which it had imported and which goods had been assessed to duty after a Bill of Entry has been filed in respect of those goods, but, on which the duty had not been paid, the same having been warehoused in the Customs Port the Port being Chennai. The sale was effected by transferring the documents of title while the goods were in the Customs warehouse which were located within the Customs station. Duty was paid on these goods by the buyer, who cleared the goods under Section 47 of the Customs Act and removed the goods out of the Customs station.

2. The goods in question is news print, which the petitioner State Trading Corporation of India as the canalising agent, imported for the users of news print. The sales, which were the subject matter of the assessment for the years 1986-87 and 1985-86, were effected to the publishers of newspapers in the State of Tamil Nadu, the newspapers being, The Hindu, The Dinakaran and The Daily Thanthi. No sales tax was collected by the assessee on those sales, the dealer having always regarded the sale as one having been effected in the course of import.

3. The dealers claim for exempting that part of it’s turnover from assessment to the tax under the Tamil Nadu General Sales Tax Act was negatived by all the authorities under the Act as also by the Special Taxation Tribunal whose order is the subject matter of challenge before us.

4. The law which governs the matter is the Central Sales Tax Act (the Act), Section 5(2) of which deals with sales in the course of import.

That sub-section (2) of Section 5 reads as under :

“A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India”.

5. For a sale to be one in the course of import it has to be either one which has occasioned the import or has been effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. Admittedly, in this case, the sale effected by the dealer is not one which occasioned the import. The only question required to be considered is as to whether the sale effected by transfer of documents of title to the goods was made before or after the goods had crossed the customs frontiers of India.

6. The words “crossing the customs frontiers of India” have been defined in Section 2(ab) of the Act. That definition reads as under :

“Crossing customs frontier of India” means crossing the limits of the area of a customs station in which imported goods or exported goods are ordinarily kept before clearance by customs authorities.

Explanation : For the purposes of this clause, “customs station” and “customs authorities” shall have the same meanings as in the Customs Act, 1962.

7. The Customs frontier for the purpose of this Act is thus equated to the limits of the area of the Customs station in which the goods are stored, crossing of such station being regarded as amounting to crossing the customs frontiers of India. The ‘customs station’ referred to in this definition is the one which is defined as such under Section 2(13) of the Customs Act : “Customs station” means any customs port, customs airport or land customs station”. Customs Port is defined in that Act in Section 2(12) : “Customs Port’ means any port appointed under Clause (a) of Section 7 to be a customs port and includes a place appointed under Clause (aa) of that Section to be an inland container depot;” Section 7(a) of the Customs Act enables the Central Government, by notification in the Official Gazette, to appoint :-

(a) the ports and airports which alone shall be customs ports or customs airports for the unloading of imported goods and the loading of export goods or any class of such goods;

8. It is admitted here that the Port at Chennai is a Port which has been notified under Section 7(a). That the imported newsprint was stored in that customs port which is also the customs station before clearance by the customs authorities is also not in dispute.

9. The crucial event for the purpose of Section 2(ab) of the Act and consequently for Section 5(2) of the Act is the crossing the limits of the area of the customs station.

10. It was submitted by the learned Counsel for the State, by placing reliance on the decision of the High Court at Andhra Pradesh, in the case of Minerals and Metals Trading Corporation of India Ltd. v. State of Andhra Pradesh, 1999 (106) E.L.T. 23 (A.P.) = 110 STC 394, that when goods are assessed to duty by the Customs Authorities after the Bill of Entry is filed the importation is completed even if the duty is not paid and the goods remain within the customs station. In that case the view taken was that irrespective of the fact whether duty is paid or not, as it is only after the Bill of Entry is filed and the import duty is assessed the goods can cross the limits of the Customs Station, transfer of documents of title before the clearance of the goods by the Customs authorities, but after the assessment of goods, would not amount to a sale in the course of import. It was held that after the assessment to duty is made after filing the Bill of Entry, the goods get mingled with the general mass of goods and merchandise in the country, and physical movement of goods out of the customs station, and the time at which the duty was paid would not be relevant.

11. With respect, we are unable to subscribe to the interpretation set out in that judgment, having regard to the plain language of Section 5(2) and Section 2(ab) of the Central Sales Tax Act.

12. As held by the Supreme Court in the case of Kiran Spinning Mills v. Collector of Customs, 1999 (113) E.L.T. 753, which arose under the Additional Duties of Excise (Textiles and Textile Articles) Ordinance, the taxable event is the crossing of the customs barrier, and not the date when the goods had landed in India, or had entered the territorial waters. When goods are imported into India even after the goods are unloaded from the ship, and even after the goods are assessed to duty subsequent to the filing of a Bill of Entry, the goods cannot be regarded as having crossed the customs barrier until the duty is paid and the goods are brought out of the limits of the customs station. In the case of Kiran Spinning Mills, the Apex Court has observed thus –

“In other words, the taxable event occurs when the Customs barrier is crossed. In the case of goods which are in the warehouse, the Customs barriers would be crossed when they are sought to be taken out of the Customs and brought to the mass of goods in the country.”

13. Until such time as the duty payable on those goods is not paid, the amount of duty payable being determined with reference to the rate at which the duty was levied as on the date of the removal of the goods from the warehouse, the goods cannot be regarded as having crossed the Customs barrier of India.

14. Section 47 of the Customs Act refers to clearance of goods for home consumption, while Section 68 of the Act deals with clearance of warehoused goods for home consumption. In this case, the goods had been warehoused and the clearance for home consumption was made under Section 68, after the title to the goods had been transferred to the buyers. The duty was paid by the buyers.

15. The Tribunal has in its order, placed reliance on the decision of the Supreme Court in the case of Madras Marine & Co. v. State of Madras (63 S.T.C. 169). The Tribunal has omitted to notice the caution set out in that judgment that the amendment introduced in Section 2 by the Act 103 of 1976 would have been relevant only if they were considering the case of sale by the transfer of documents of title to the goods as contemplated by Section 5 of the Central Sales Tax Act, but, that facts of the case before it did not involve a transfer of document of title to the goods, and therefore, the fact that the customs station itself was within the State of Tamil Nadu would not, on that score alone render all sale of goods which are in the course of import and awaiting clearance from that station, local sales.

16. The ‘clearance’ referred to in Section 2(ab) of the C.S.T. Act, in the absence of any other compelling factor has to be regarded as having reference to the clearance of goods for home consumption under Section 47 or the clearance of warehoused goods under Section 68 of the Customs Act. The clearance in this case, clearly was after the transfer of document of title and was not earlier. The crossing of the limits of the customs station took place after the clearance of the goods from the warehouse for home consumption.

17. The title having passed on to the buyer before such clearance and crossing, the sale effected by the assessee/dealer was clearly one which was in the course of import. The impugned order of the Tribunal upholding the denial of exemption to the dealer in respect of these sales is, therefore, unsustainable and is set aside. The writ petitions are allowed.

Hello sir we are supplier for HSD
[Imported Diesel] as per customs this imported diesel is non-tradable this we can sale to foreign going veseels only so we buy from importer vide shipping bills and we sale the goods from custom bond or custom warehouse etc to foreign vesels my question is in gujarat can VAT will be chargeable on sale, ther is only shipping bill DULY ATTESTED BY CUSTOMS AND VESSEL CAPTAIN as acknoledgement. there is no custome duty on this transaction.

We are an importer based in chandigarh . Now we are given a purchase order by a Government DEpartment for an imported equipment which occassion a import by us from the foreign manufacturer ( we are the agent of that manufacturer ) . Now under section 5 .2 does it qualify as sale during course of import if yes is this exempted from sales tax ? Also what is the documentation required for such availing such exemption ?